Shimano XT disc weirdness....

Ok, so I was getting some rubbing on my rear rotor. I looked and the pads seemed to be running very close to the rotor. I toggled the brakes a few times and nothing changed. I then pulled my levers very hard and let loose. After the levers snapped back there was significantly more space around the rotor. Squeezing and releasing them a few times brought me back to having the pads very close to the rotor. This is repeatable.

Any ideas here? The levers are firm, but is it still possible I need to bleed the brakes?

A lot of any issue with pads alignment, rotors rubbing etc can be traced to disc tabs that are not perfectly perpindicular to the center line of the hub axle. Find a shop that has a Magura disc mount alignment tool and have them machine the tabs so you at least know that your brake is perfectly alignen. Avid, with their CPS mounting system can get around this issue better than others.